Penny Stock Investors Should Remember 3 Things

If you are one of the millions of serious investors who prefers to hold at least a few penny stocks in your portfolio, it pays to do lots of research and follow tried-and-true principles. Blue chips and small-cap shares are listed on exchanges, but penny shares are not. In addition to research, you’ll need to have a system in place for choosing companies, know how to get expert advice, learn how to day trade, understand how to build a strategy, and know the ins and outs of selecting a reliable broker.

What’s what when it comes to these low-priced stocks? Here’s a brief summary of what you should know before putting your money on the table:

The Value of a System

If you don’t already have a system for knowing and choosing what stocks to watch, then you’re flying blind. Without the guidance of an experienced broker, it can be quite difficult to compare companies’ strengths and weaknesses. You can find credible picking systems in textbooks and at hundreds of stock-picking websites. Try to use a reputable resource to come up with a system that makes sense to you. Most penny share enthusiasts spend several hours reviewing corporate publications like websites, product announcements, annual reports, quarterly financial statements and more.

For low-priced shares, price history is not always a good indicator of future moves. This is especially true when an unknown firm’s stock price has hovered between 95 and 99 cents for the past year. There’s just very little relevant information in price charts like those. Instead, consider basing your selection system on fundamental analysis that pertains directly to the inherent value of the corporation’s structure, staff, products and reputation.

Using the Experts

Fortunately, there are hundreds of for-profit stock-pickers that will be happy to offer their services to you. On the other hand, you can find a lot of free penny stock information on blogs that follow particular sectors or just keep track of the low-priced end of the securities market. There’s always an expert out there you can follow along with in the beginning. Later, after you get a feel for making selections yourself, break free of the gurus and do make your own calls.

Picking an Online Broker

When choosing an online or traditional brick-and-mortar broker, ask whether they will let you buy and sell penny stocks. Many don’t handle the low-cost side of the securities market for reasons related to profit and convenience. Pennies are a pain for brokers to keep track of because they often have to deal with millions of micro-sized transactions and make little on the commissions.

But there are a few reputable online and other brokerage firms that are willing to work with you if your game is low-cost share trading. Get details about how commissions are charged and whether you can trade the whole market or just a select few shares that the brokerage prefers. Ask questions until you’re satisfied that a particular brokerage firm will assist you in your quest to sharpen your trading skills and learn more about this side of the market.